China to loosen JV ownership restrictions for foreign automakers

BEIJING -- China has provided the clearest indication to date that it plans to lift the cap on how much foreign carmakers can own of their local joint ventures, putting pressure on Chinese automakers to speed up the building of their own brands.

In a joint release on Tuesday, the National Development and Reform Commission together with the science and industry ministries laid out a development blueprint for the country's auto industry covering the years through 2025. The government will "open up the restriction on joint venture ownership in an orderly manner," according to the plan, which didn't provide details of how the liberalization will be carried out or provide a timeline.

The so-called "50:50 rule" -- named after the 50 percent limit that foreign companies can own of their Chinese joint ventures -- has for years been a sacred cow for the auto industry, seen as necessary to buy local carmakers time to gain the technology and build their brands before giving overseas automakers unfettered access to what's now the world's biggest car market.

That began to change in 2014 when a Chinese commerce ministry official suggested in a public forum that local carmakers should prepare for the day the rule will be relaxed. The prospect of allowing companies including General Motors and Volkswagen Group to own all of their operations in China prompted the then-head of the state-backed China Association of Automobile Manufacturers to remark that Chinese brands would be "killed in the cradle."

Trade talks

Most recently, China was ready to relax the policy during President Xi Jinping's visit to Florida earlier this month for a summit with President Trump. Bloomberg reported in June that China's government was considering loosening the policy that has long been criticized for shielding state-owned companies from competition.

While Tuesday's development plan didn't include a specific timeline on when the ownership restriction will be opened, or whether it will be a gradual opening up or complete lifting of the cap, it's the first official mention in writing that the government will relax the limit.

"My opinion on this has been that over the long run the restriction on stake cap will be lifted," said Dong Yang, vice chairman of CAAM, after attending a meeting organized by the industry ministry to discuss the plan. "But it won't work if we remove it immediately and that is what 'orderly' means."

Market share

Less than half the record 23.9 million cars, SUVs and minivans sold in China last year were local brands. Market share for Chinese-brand cars has stayed fairly constant, reaching 43 percent last year from 41 percent a decade ago, according to the state-backed manufacturers association.

Automakers such as Honda said there are benefits of a local partner in China. "They teach us many things and we are working together," Yasuhide Mizuno, Honda's China chief, said in Tokyo on Tuesday. "And this won't change even if the stake-holding regulation changes" in the local joint ventures, he said.

"Whether or not the rules are weakened, what is important is a win-win situation for all the parties," Zeng Qinghong, chairman of Guangzhou Automobile Group, said in Tokyo on Tuesday when asked about the industry plan. The automaker has local joint ventures with Fiat Chrysler Automobiles, Honda and Toyota.

Audi welcomes market liberalization in general, said China spokeswoman Johanna Barth. There are no concrete details in the plan, which won't affect Audi's joint venture with FAW and ongoing talks with SAIC Motor to make Audi cars, she said.

Volkswagen will examine if there are new opportunities in China, while it doesn't see any changes for current joint ventures in the country, the automaker said in an emailed statement. "Every step to liberalize the Chinese economic area is a positive signal -- especially when it affects the future market for e-mobility," it said.

Foreign companies often prop up their domestic partners to help them stay in business and keep the assembly lines rolling, said Jochen Siebert, the Singapore-based managing director of JSC Automotive Consulting. If the cap is lifted, some partnerships would take years to unravel as the parties haggle over the price. Yet carmakers owned by local governments may dissolve their marriages quickly so officials can use the proceeds to invest in ventures such as improving public transportation, Siebert said.